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Join Tod Stillson, a family physician, as he uncovers the transformative concept of professional micro-corporations and how they’re reshaping the way doctors navigate their careers. Stay tuned as we discuss the keys to reclaiming professional autonomy, combating burnout, and thriving in the modern medical landscape.

Tod Stillson is a family physician.

He discusses the KevinMD article, “It’s time for every doctor to start a professional micro-corporation.”

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Transcript

Kevin Pho: Hi, and welcome to the show. Subscribe at KevinMD.com/podcast and get CME for this episode by clicking on the CME link in the show notes. Today we welcome back Tod Stillson. He’s a family physician. His KevinMD article is titled “It’s time for every doctor to start a professional micro-corporation.” Tod, welcome back to the show.

Tod Stillson: It’s great to be back with you.

Kevin Pho: Perfect. I was just looking back, and as we were saying offline, we last spoke more than two years ago. How have you been since then?

Tod Stillson: I’ve been doing fantastic. I’m in the wind-down of my 30 years of clinical practice, so I’m less than a year from being done as a clinician in my little community in Northern Indiana.

Kevin Pho: All right, what do you have planned next?

Tod Stillson: I’m going to do some locums, continue to do some writing and blogging and follow some passions that include helping doctors become micro-corporations.

Kevin Pho: All right, so what’s your practice like now?

Tod Stillson: Right now I’m a general family doctor who does OB, pediatrics and hospital care, the whole thing, in rural medicine. I also precept students and residents, and I have a really great, thriving practice of about 5,000 patients.

Kevin Pho: So what you describe is kind of a dying breed. You do it all: You do the hospital, and you do the office. Tell me about the challenges of that. What are your feelings about that form of physician becoming less and less common?

Tod Stillson: Yes, less and less common. I used to resist it a bit more, as young physicians came in with their preferences for a lifestyle, and really the quality of life they want to have in their professional life. I also see a lot of hospital changes. For instance, the hospital I’m working at is in the process of closing its OB unit, in our little hospital, which is a pretty big deal. It’s going to push people out to deliver babies about 45 minutes from where we live. But it’s all part of the economic climate of hospitals and the work they’re doing, and changes evolve, and frankly, all doctors have to adapt to things.

Kevin Pho: Yes, so you are indeed a true family physician, doing it all. What do you see as the future of family medicine, as those parts of medicine, whether it’s the hospital, the clinic or OB, become more specialized?

Tod Stillson: I see family physicians, of course, still being on the front lines, doing primary care in community-based areas, but they’re also going to become captains of teams. There are a lot of ancillary staff members, whether it’s a social worker, a pharmacist, nurses or nurse practitioners, and the family doctors of the future are going to have to be good quarterbacks, not just managing patients clinically but, in some regards, influencing and affecting a whole group of providers who work to take care of patients.

Kevin Pho: How do you feel about that?

Tod Stillson: I think in the right setting it can work well, but I think the downside is that sometimes doctors are minimized in terms of their professional status. They become, quote, providers, just one of the other providers in the stable, and are seen as commodities by the companies that employ them. It can be, I guess, painful for doctors to begin to see themselves as simple commodities. So I think we need to continue to adapt as a profession, maintain our professional status and use our brains and skills to maximize all that we can provide to the economy, really.

Kevin Pho: All right, so in your KevinMD article, you talk about the concept of a micro-corporation. Your article is titled “It’s time for every doctor to start a professional micro-corporation.” So talk about your article, and maybe you can start by defining what exactly a micro-corporation is.

Tod Stillson: A micro-corporation is really a corporation that’s designed to envelop you as an individual physician. It’s really that simple. As professionals, we’ve all earned the right, as doctors, just by going through our training, to organize ourselves in that way. There are other professions that have the same opportunity: Lawyers, accountants, engineers and the like all have the ability to be a professional corporation as an individual. About 40 or 50 years ago, doctors used that envelope in a different way when they went into private practice. The idea of a professional corporation came to include a building, employees and really doing a whole lot of medical care in a community-based setting. A micro-corporation is really just about you. You’re not managing anybody except the one single employee you have, which is yourself, and you’re using that micro-corporation in all the professional environments you can imagine, for any job in the country. So, in some regards, Kevin, doctors can look at themselves as individuals, like individual taxpayers, W-2 taxpayers, or they can look at themselves as individual micro-corporations and engage in professional service contracts with anybody who wants to work with them, either as an individual or as a corporation.

Kevin Pho: So tell us what that would look like in practice, given that a lot of physicians, like you said, are in W-2 situations; they’re employees somewhere. What would a physician representing himself or herself as a micro-corporation look like in a common scenario like that?

Tod Stillson: That’s a great question, and this is a bit of a hidden gem for doctors if they don’t know about it. There’s something called employment lite. Employment lite is basically where you contract with the hospital, in many cases one that wants to employ you, and rather than a business-to-individual contract, it’s a business-to-business relationship: their business to your business. All the other guts of the contract are the same, but whom they’re paying is not you individually; they’re paying your micro-corporation. That’s through a 1099 contract, which provides you with both professional autonomy and a whole bunch of small business tax benefits. For the hospital, which is paying you for those services, it really doesn’t matter whom they’re paying. They’re getting the same sort of management and control of you. But in many regards, you gain a whole lot on the other side when you receive it as a micro-corporation rather than as an individual.

Those options exist all across the country. It’s called employment lite, and virtually every major hospital system that employs doctors has employment lite on its menu. But Kevin, I like to call it the hidden menu. When I go to Dairy Queen, I look at the menu on the panel and see all the stuff I can get, but there are things you can order at Dairy Queen that are not on that panel. You may or may not know that. The same is true for doctors when they go to contract with hospitals to do the work. The hospital is not going to tell them the whole menu of options. They’re going to provide the menu of options that’s really what I call traditional employment; that’s their primary go-to MO. This is the status quo. But you have to know that there are other options for forming that contract with them, and that includes employment lite through a micro-corporation.

Kevin Pho: Tell us about some of those benefits. You mentioned tax benefits, the financial benefits of getting paid on a 1099. Just go into more detail.

Tod Stillson: Exactly. I think there are really two big elements I consider important, and this is part of my personal journey. For my first 15 years in practice, I was just a traditional employee, and frankly it led me down the path of burnout, which a lot of doctors have experienced and know all about. I happen to believe traditional employment in particular is one of the major drivers of that, for a number of reasons you’ve had on your podcast before. It wasn’t until about 10 to 15 years ago that I discovered this other option, this “I could incorporate” option, and still continue to be employed by the same employer, but in a different business-to-business relationship. Once I discovered that and began to take control of my professional life, it changed everything, because all of a sudden control and autonomy were restored to me. That’s one of the most fundamental things every doctor you talk to probably will talk about: They want control over their professional life. When you enter into a relationship with an employer as a traditional employee, by definition that means they control you. If you enter into it as a business-to-business relationship, they don’t control you. They control how the organization of that business-to-business relationship works, but they don’t control you; your business controls you. So autonomy is one fundamental element.

The other element, for high-income earners like doctors, has to do with our taxes, right? It’s a very common conversation. Doctors despise the fact that as a W-2, and especially a high-earning W-2, you have very little play when it comes to your taxes and how to mitigate them. There are a few small options, but when you organize yourself as a small business and have both channels, small business and individual, i.e. 1099 income, then all of a sudden your tax options to move and really retain some of your income go up dramatically, along with your ability to enhance your retirement savings. So there’s a bunch of small business tax plays that come into this. I would say those are the two most fundamental elements of that transition: autonomy and tax strategies.

Kevin Pho: As you know, the difference between getting paid on a 1099 versus a W-2, of course, is benefits. How does that affect the benefits situation if you’re a micro-corporation?

Tod Stillson: A lot of physicians fear that whole benefits thing, because in a 1099 position you have to go acquire your own benefits. Whether it’s your health insurance, your life insurance, your malpractice insurance, et cetera, you go and obtain those. It’s really not that difficult, and there are a lot of agencies that will help physicians do this. I like it because it allows for an individualized benefit plan. When you are an employee, you have a generic benefit plan. When you are in a 1099 position and have your own corporation, you get to individualize that benefit plan and your fringe benefits. So you don’t get any extras you don’t need; you’re really just going to pay for what you do need, and there’s a wide range of those benefit plans. How some of the benefits can be incorporated in a tax-efficient manner will depend on whether you decide to be an S corp or a C corp; that’s some micro information about it. But there are different benefits that apply to each of those different corporations within a micro-corporation. I love it, and physicians should not fear getting those benefits. They should actually enjoy the process of individualizing their benefit plans.

Kevin Pho: So what is the first step of incorporating? Is it getting an LLC? Is it formally incorporating? If someone were interested in pursuing this, tell us the first steps, and walk us through the next few.

Tod Stillson: First of all, you have to be a licensed physician in a state. So let me pull back a little here. I want every physician to know that when you go through your training process, you’ve earned the right to actually incorporate, and that includes getting your license. As a lot of physicians wrap up their training, their residency or fellowship, they go through the process of providing all those credentials, and the most common step they’ll take is to get board certification in their specialty. That’s a step you take to certify to the world that you are board-certified. I would say a similar step they should consider, once they have their license and all the proof that they are a licensed physician, is to go ahead and form a micro-corporation around themselves, just as they would go through the process of becoming board-certified.

The way you do that is through an individual state, and typically you would do it through legal counsel, who would help you identify which type of corporation will work best for you. The two most common are typically a professional corporation, called a PC, or a professional LLC, a PLLC. Both of those are pretty equivalent; depending on the state you’re in, one might be a little more favorable than the other. So a PC or a PLLC is really your best option. Some doctors do form an individual LLC that’s taxed as an individual taxpayer, and some doctors choose to be sole proprietors, again taxed as individuals. But I really advocate for doctors to incorporate themselves as PCs or PLLCs, for a number of liability reasons as well as a number of tax reasons.

Kevin Pho: Now, when you enter a contract negotiation with a hospital as a micro-corporation, how common is that, and how would you approach the hospital to say that you want to negotiate as a micro-corporation?

Tod Stillson: That’s another very good question, and I would say it’s pretty uncommon. Most hospitals are not used to a doctor coming at them and saying they want to negotiate their contract as a business-to-business relationship. The only exception is if you’re a locums; then they’re a little more used to a business-to-business relationship. Traditionally, the land of micro-corporations has been dominated by locums, but really there’s a whole menu of job options out there for doctors as micro-corporations now that go well beyond locums. It’s what I call not short-term labor but long-term labor. All the hospitals are looking for long-term labor, and they have traditionally funneled it into employment, but now they can funnel it into employment lite rather than traditional employment. But you have to communicate this up front.

I think a simple way to look at it is this: We’re in a physician shortage, mostly, and every hospital has recruitment and retention issues with physicians. When they begin recruiting you, you go through the dance. You figure out whether this is the right place and a good match; you do all the stuff doctors do. At the end of that process, you can definitely say, “Well, I’m interested in working for you, but these are the terms of how I want to work for you. I am a professional corporation, and I’d like my contract to be organized through the professional corporation rather than through an individual.” Most hospitals are going to say, “Oh, OK, well, that’s how our legal department can do this,” especially if they’re interested in you. I also recommend that physicians who are very assertive about this let the recruiter know up front. If they’re working with a recruiting firm, they can definitely say, “Look, I want an employment lite contract. I want to work as a long-term contractor with the hospital. So don’t profile for me hospitals that are unwilling to do that; profile for me hospitals that are willing to do it.” And there is a profile for the hospitals that are typically more willing to do it, et cetera.

Kevin Pho: Now tell us some of the differences in contract negotiations as a micro-corporation. I’m sure the salary numbers are going to be a little different, because the benefits are defined differently for a micro-corporation versus an individual. But other than that obvious factor, what are some other contrasting things a physician should know about when negotiating as a micro-corporation?

Tod Stillson: Well, first, if we’re going to compare apples to apples, employment lite to traditional employment, as an example, Kevin, I would say the compensation structure built into either contract can be totally the same. In other words, apples to apples: You’re not asking for more as a contractor. You’re asking for literally the same amount of money. But here’s the difference. For most traditionally employed doctors, the benefits package, the malpractice insurance and the other things paid for by the employer are worth about $30,000 to $50,000, and I recommend what I call a gross-up process. In other words, you would ask the employer to pay that extra $30,000 to $50,000 to you, rather than your just eating it yourself in the contract. They can’t pay for those benefits for you, but they can give you additional compensation that covers that cost. For the employer, that makes it an apples-to-apples comparison. In other words, your physician labor cost to them as an employee and your physician labor cost to them as an employment lite doctor are going to be exactly the same.

And in fact, the nuance is this, Kevin: The employment lite doctor is going to cost that hospital less money. The reason is that if you took those two scenarios I just described and compared them, the hospital is not going to be paying employment taxes for the employment lite contractor. That’s going to save the hospital about $10,000. So you’re actually going to be the cheaper labor, compared to the traditional doctor, while literally getting paid exactly the same, in the same compensation structure. But it’s what you can do after you receive that money as a micro-corporation that allows you to retain and save a whole lot more than the traditional employee.

Kevin Pho: Tell us what kinds of resources a physician can turn to during that negotiation process. Would most physician contract attorneys know how to negotiate on behalf of a physician micro-corporation, or do you need specialized services? Because how would a physician know to get that up-front cost equivalent of $30,000 to $50,000 in benefits? Tell us what kind of help they would need.

Tod Stillson: First of all, you’re making a good point: Most doctors are business illiterate, so to speak, so they’re not sure. Unfortunately, a lot of doctors engage in those negotiations by themselves, individually, without the support of a team around them. I very much encourage physicians to identify an agency, like the one I have, Simply MD, that does that. There are multiple other agencies around the country that support doctors, and there are lawyers who do this too. Involve them as your representative in that engagement process, to help you know how best to negotiate. Some doctors are confident; unfortunately, some of them are overconfident about their ability to negotiate, and they will do a whole lot better if they have a third party helping and assisting them in the process.

Kevin Pho: Are there any situations where a micro-corporation may not be the right step for a physician?

Tod Stillson: Absolutely. In those cases, I would say the most common scenario I would see is a physician who comes out of training with a very large burden of loans, where part of their negotiation with the hospital is the resolution of those loans, oftentimes at least a certain amount of them, for X amount of service. Often that’s going to be supported through a true, traditional employment relationship. Since a lot of young doctors have these large student loans, that’s not uncommon. Maybe they can look at their first three to five years as more traditional, but then, after that first contract, once they’ve resolved those loans, using a micro-corporation would definitely be something to consider.

I encourage doctors to do this during their residency. I encourage them to do it up front, so they have it in their pocket when they go to look for their job. They can profile the hospitals that are willing to do it, and frankly they can even use it for the side jobs they do. They can use it for moonlighting; they can use it in really all sorts of environments. Doctors may not know this, but they can use it if they join a private practice group. You can join a private practice group as a micro-corporation. In other words, you as an individual doctor don’t have to own your shares of that private practice group; your micro-corporation can own those shares. So really, any place an individual doctor can go and work, their micro-corporation can go and work and do the exact same thing. It’s just an intermediary in the business-to-business relationship.

Kevin Pho: And my final question, Tod: Tell us some of the take-home messages that you want to leave with the KevinMD audience.

Tod Stillson: My take-home message: Teach them, coach them and mentor them in understanding the value and benefits of micro-corporations. It’s important for doctors to find people who can do that. It’s one of the reasons I started my agency, Simply MD, as a community of physicians who help each other grow in their understanding of, and competency in, the business knowledge that allows doctors to thrive. It’s very important for doctors to find people who can help them with this.

Kevin Pho: Tod, thank you so much for sharing your perspective, time, and insight, and thanks again for coming back on the show.

Tod Stillson: Thank you, Kevin.